Several DeFi projects have fallen to some exploit since the beginning of 2020. But instead of casting the entire sector aside as broken, some investors say that despite these failures, DeFi survived.
And in a world full of shortsighted scammers and experiments, that’s very bullish.
Did DeFi Survive?
Headlines surrounding the crypto market crash have dominated the news cycle.
Analysts are working to identify where prices are headed next. Others, like MakerDAO, are still picking up the pieces. Amidst the chaos, the broader DeFi space faced its first real test.
Almost the entirety of the decentralized finance movement rests on the shoulders of the Ethereum network, warts and all.
The advantage of this blockchain has been its malleability. Developers of all stripes can pick up Solidity, the network’s programming language, to build smart contracts and reprogram large portions of traditional finance.
Unfortunately, when Ether’s price drops in any meaningful way, it can put projects leveraging the network’s infrastructure at risk. This was the case with MakerDAO.
When the price of ETH crashed, holders simultaneously rushed for the exit. This spiked gas prices for transactions throughout the network. The high gas prices also exacerbated the speed at which transactions could be executed. This placed a lag on price oracles, including industry leaders Chainlink, as well as Maker’s oracle called the “Medianizer.”
Once these oracles updated, the reported price dropped by over 20% and liquidated many Maker vaults. The ETH released following these liquidations was then placed on auction, according to the Maker protocol. But, again, high gas prices prevented several auctioneers from buying up the ETH on offer.
One astute buyer raised their gas fee to an exorbitant sum, cut to the head of the auction queue, and effectively bought all $8 million worth of Ether for free.
The event is still playing out as Maker scrambles to salvage the…